Ch.7
2)
a)
b)
c)
Per the Horizontal Merger Guidelines, the pre-merger HHI is 4112 which exceeds and the
post-merger HHI increased to 5072, which is more than the permitted under the guidelines.
Guidelines state that the merger is allowed if the HHI only increases 100 to 200. This this case
the merger increases 960 and therefore the merger is likely to be challenged by the FTC or DOJ.
9)a) Industry A has a four-firm concentration ratio of .005 % and a HHI index of 75. A
representative firm has a Lerner index of .45 and a Rothschild index of .34.
Firm A is operating a monopolistically competitive market. The HHI has a very small value of
75, which indicates the absences of concentration of firms. A value of less than .5 for Lerner
index and Rothschild index confirm this result.
b) Industry B has a four-firm concentration ratio of .0001 % and HHI index of 55. A
representative firm has a Lerner index of .0034 and Rothschild index of .00023.
Firm B is operating in a perfectly competitive market. The HHI has a very small value of 55,
which indicates the absence of concentration of firms. Lerner index and Rothschild Index have a
value, very close to zero, which confirms this result.
c) Industry C has a four-firm concentration ratio of 100% and HHI of 10,000. A representative
firm has a Lerner index of .4 and Rothschild index of 1.
There is only 1 firm in the market since the four-firm concentration ratio is 100%. The HHI has
a very large value of 10,000, which indicates the presences of only 1 firm. A value of unity
